Corporations and LLCs are highly attractive business entities for employers because of their limited liability protection. Generally speaking, this means that the actual shareholders, officers, and directors who operate and own the underlying business are not personally on the hook for the company’s debts and obligations. Rather, the underlying company -as a separate and distinct entity- is responsible for its own debts and obligations.

California has a very large exception to corporate limited liability when it comes to unpaid wages, late paid wages, and other common wage-and-hour violations through California Labor Code Section 558.1. This short but very powerful law was enacted to combat wage theft by corporate employers who try to terminate their business to evade their obligation to pay wages.

Section 558.1 states that any employer (such as a corporate employer) or other person acting on behalf of an employer may be held liable as the employer for a violation of six of the most common unlawful wage violations. The section goes on to clarify that “other person” means a natural person who is an owner, director, officer, or managing agent of the employer. Thus, individual owners, directors, and agents are on the hook for labor code violations by the corporate-employer.

Some of the most common California Labor Code violations are included within the purview of this new law, exposing actual business owners to liability for a company’s unlawful conduct:

1) California Labor Code Section 203 requires employees to be immediately paid their complete and full wages upon an involuntary termination or within 72 hours of their resignation. If payment is not received within those times the employer and/or the person acting on behalf of the employer, owes a penalty called the “waiting time penalty” equal to a full day’s wages, for up to 30-days.

2) California Labor Code Section 226 requires that employers furnish a semi-monthly pay stub that accurately lists the number of hours worked, the employee’s pay rate, any deductions, and the name and address of the employer.

To illustrate the power of this law, imagine the following hypothetical of Jared vs. Acme Mechanics Incorporated, a California corporation. Jared works as an auto mechanic for Acme Mechanics, Inc. a small California corporation solely owned and operated by Mike, Acme’s CEO. Jared works for Acme, Inc. for a number of months, but Acme, Inc repeatedly delays payment and then stops paying Jared altogether. Acme Inc. then goes out of business without paying Jared any of his last month’s wages. Jared may file a lawsuit against both Acme, Inc. and also against Mike as Acme’s owner, director and managing agent for his unpaid wages. Mike, the sole owner and CEO may be personally liable under 558.1, even though Acme Mechanics Inc is no longer in business and lacks assets, greatly increasing Jared’s chances of actually recovering his unpaid wages.

Do you have a claim for late or unpaid wages? Contact Law Office of Brian Mathias.